The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele has disclosed that he is reasonably optimistic the naira will stabilize at around N250 to the U.S. dollar after an initial period of weakness.
According to the Central Bank Governor, this will come after a brief period of fluctuation, following a flotation which the bank declared on Monday. This was contained in a letter to President Muhammadu Buhari from the governor of the central bank.
The Central Bank had on Wednesday disclosed that it would begin market-driven foreign currency trading next week, abandoning the official exchange rate pegged of N197 to the US dollar that it has maintained for the past 16 months.
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The Central Bank had for some time now ignored calls for a devaluation by economic analysts and foreign investors as chronic foreign exchange shortages choked economic growth and deterred investment.
It is expected that the naira will fall sharply when inter-bank trading begins on Monday. The CBN however said it did not have a target for the currency and the price would be purely market-driven.
Naira Will Eventually Stabilize – Emefiele
As at Thursday, the naira was trading on the black market at around 370 to the dollar. Giving the first indication of likely target, CBN Governor, Emefiele said in a June 3 letter to Buhari as reported by Reuters, that the central bank hopes the naira will eventually stabilize and trade at around 250 per dollar, a level the president reportedly approved.
Emefiele in the letter said,
“I must assure Your Excellency that we are indeed reasonably optimistic that at some point the rate will settle around 250 naira.”
The letter, which briefed President Buhari on the foreign exchange plan announced on Wednesday, says it could take three to four weeks to clear a $4 billion backlog of foreign exchange demand.
President Buhari has for months has refused pressure to devalue the naira, but rather preferred a more flexible exchange rate policy.
With a likely sharp drop in the value of the naira, Nigerian products will become relatively cheaper and imported products much more expensive. This should stimulate the domestic economy but also cause a slight rise in inflation.